US borrowing costs hit 2007 high as oil surge fuels rate hike expectations

The US 10-year Treasury yield rose to 5.04% — its highest since 2007 — as oil prices jumped above $109 per barrel (€101). Investors now see a 94% chance the Federal Reserve will raise interest rates on Wednesday, its first hike in three years, per CME FedWatch.

Bottom line — The Fed is now 94% likely to hike rates to 3.75%–4% on Wednesday, its first increase in three years.

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• Brent crude oil surged 2.9% to $108.76 per barrel (€100) on Tuesday, per the New York Post, amid the Middle East crisis and disruptions in the Strait of Hormuz.
• Diesel prices hit a record $6.27 per gallon (€1.50 per litre) in the US, raising fears that transport costs will feed through to broader inflation, the Post reports.
• Morgan Stanley and Goldman Sachs abandoned their predictions of no rate hike and now expect a quarter-point increase, with at least one more later this year, per the Post.
• The 30-year Treasury yield, more sensitive to geopolitical shocks, jumped to 5.368%, while the 2-year yield rose to 4.665%, the Post adds.
• Carol Schleif, chief market strategist at BMO Wealth Management, told the BBC that bond markets have been signalling higher rates for weeks and that yields could stay elevated if tensions persist.
• Tech giants borrowing heavily to build AI data centres are also competing for debt, pushing up corporate bond yields and spilling over into government yields, per the BBC.
• National Economic Council Director Kevin Hassett tried to calm fears, saying inflation appears to be cooling based on 'the stochastic process,' but deferred to the Fed's decision, the Post reports.

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